Institutional Traders Shift to Over-the-Counter Trading Desks?

Institutional cryptocurrency trading on traditional exchanges have lost ground in volumes as Bitcoin is being welcomed into major outfit portfolios this year, with more slated to come online in 2019. Cryptocurrency exchanges do have the advantage as working hours in traditional markets might be an Achilles heal too great an obstacle to overcome for big traders within an erratic, global and round-the-clock markets. But high-demand liquidity would ultimately have to be found through OTC trading desks.

Coinbase, alone, witnesses more Bitcoin trading volume than Grayscale's Bitcoin Investment Trust (GBTC) on the OTC Markets where the institutional cryptocurrency product is listed. That being said, with OTC Markets being open for trading only 31% of yearly tradable hours, the volumes whilst small aren't insignificant and quite telling in terms of trend.

In 2017 trading volumes between Coinbase and GBTC were neck-to-neck but this year has seen the two go in opposite directions. Coinbase, during OTCMarkets hours has seen an increase in Bitcoin trading volume by 20% while GBTC volumes are down 35% 2017 vs. 2018 for the same period.

The decline begs the question - are institutional traders keeping at bay or have they shifted towards higher liquidity over-the-counter physical Bitcoin markets? The answer is likely a little bit of both.

|| MORE THAN MEETS THE EYE

In the first three quarters of this year Grayscale saw net inflows to the tune of $216Mn into its Bitcoin Investment Trust (Diar, 5 November). And while interest has slightly worn off from peak hype, the record inflows have resulted in Grayscale holding custody of over 1% of Bitcoin's circulating supply (Diar, 3 December).

The shift could be a sign of investors seeking private placement in a market that has seen regulatory clarity, at least in terms of Bitcoin, the development of custody solutions, many of whom have also secured insurance cover, as well as multiple Over-the-Counter trading desk avenues.

|| GLOBAL TRADING REALMS

Coinbase which represents only a fraction of global markets sees over 30% more trading outside of traditional exchange hours. With no time stop on trading, institutions and big money would require access around the clock from fears of a rude awakening in a market that remains highly volatile, despite that decreasing to new lows this year (Diar, 29 October). On the flip side, this may also be a hurdle for institutions that would require amped up man power to decide to open-risk, even with technological stop-gaps and trading algorithms.

|| OTC GROWS

All major exchanges in the US now offer OTC services , with many other players addressing the market solely. Max Keidun, CEO of Peer-to-Peer exchange HodlHodl, whom also have an OTC Desk, tells Diar that large order requests have grown exponentially in 2018 doubling month-on-month. But it hasn't come without difficulties. "It's quite harder than usual to find a seller at current prices" Mr Keidun said.

|| DEVIL IS IN THE DETAILS

When there's a will there's a way and sellers and buyers will ultimately find a match. But problems still arise as large fiat transactions linked to Bitcoin remain to be scrutinized by the banking sector despite providing ample documentation clearing Know-Your-Client requirements.

Nasdaq XBT Tracker One - Traded Bitcoins (Value Equiv.) Drops 70%

Ethereum Classic Trust Fails to Break $10Mn in Volume on OTCMarkets

Amun Crypto Basket Index ETP Trading Volume (EUR)

Sources: Yahoo! Finance, Grayscale, SIX Exchange, CoinAPI, Diar Calc.

Banking Meets Bitcoin as Bitwala Secures Licensed Partner

Berlin-based Bitwala has began opening banking accounts for German residents having partnered up with Solaris Bank, a FinTech banking platform regulated by the Federal Financial Supervisory Authority (BaFin) and the European Central Bank (ECB).

Lines are now beginning to cross-over with traditional banking services, FinTech 'neo-banks' and cryptocurrency trading services. And while Revolut was indeed one of the first to offer the bridge of services, Bitwala clients will be able to send and receive Bitcoin highlighting trusted Know-Your-Client and Anti-Money Laundering procedures likely made more regulatory-safe on the back of a small trading limit of €15,000 per month.

Customers will garner the benefits of any European bank account, such as the protection of €100,000 by the German Deposit Guarantee Scheme (DGS). The scheme does not cover the value of cryptocurrency holdings, however, this would only be problematic in the case that users did not hold their private-keys which is not the case for Bitwala wallets.

Bitwala will also be offering the ever elusive crypto-debit card with the stamp of MasterCard after competitor Visa exited the arena this year with the termination of their partnership with WaveCrest, the only European crypto debit-card issuer at the time (Diar, 8 January).

US Securities and Exchange Commission Continues Onslaught

It has become a rare week when the US Securities and Exchange Commission hasn't taken action against a cryptocurrency operation in the past several months. Last week saw the largest penalty yet be handed to halted ICO founders of AriseBank now barred from working in publicly traded companies and their bank accounts squeezed out of $2.7Mn in disgorgement and penalties.

US Securities and Exchange Commission Recent Actions

wdt_ID

Date

Company

Settled Charges

1

8-Nov

EtherDelta

Trading Unregistered Securities

2

16-Nov

Airfox

Issued securities (ICO) without registering

3

16-Nov

Paragon

Issued securities (ICO) without registering

4

29-Nov

Floyd Mayweather

Non-disclosure of ICO promotion earnings

5

29-Nov

DJ Khaled

Non-disclosure of ICO promotion earnings

6

7-Dec

CoinAlpha

Unregistered Securities Sale

Barclayscard Testing Decentralized IdentityBarclayscard Payment Solutions have entered a 12-month accelerator program with Self Sovereign Identity (SSI) specialist Evernym. The move will attempt to explore the potential use cases, including but not limited too single-click sign on for ease of customer information being relayed to those who need it all the while utilizing the blockchain to retain ownership of how personal data is and can be used. Drummond Reed & Christophe Cremault of Evernym have discussed SSI in Diar here in their op-ed looking at the future potential of the technology.

Basis Shut-downOne of the most well funded VC projects in the cryptocurrency space, stablecoin Basis that had raised $133Mn, has announced that it will be shutting down operations and returning investor capital as it was unable to overcome regulatory hurdles that pushed it in a securities-labled token due to its bond algorithm that would attempt to remove volatility from the non-fiat-backed cryptocurrency. The SEC would have required from Basis to conduct KYC, investor whitelists, amongst other requirements, that would far remove it from its decentralized vision.

Revolut Lands European Banking LicenseBritish-based cryptocurrency-friendly neo-bank Revolut secured itself a European bank license last week. While the company had finally turned a profit in 1Q18 on the back of their cryptocurrency product, the fin-tech mobile-bank has fallen back into loss making as it has sought to reinvest and expand its investment products after raising $250Mn this year. The mobile bank space has become a user onboarding arms race as many EU-based companies have tried to eat at bank market share from N26, Monzo and even Goldman Sachs' own Marcus.

Coinbase Integrates PaypalCoinbase stays on-tune to its message of an Open-Financial System now allowing for instant withdrawals of balances into PayPal. While this is currently only available to US customers, the popular exchange eyes a larger worldwide rollout in 2019. These small moves are beginning to thread together a story for Coinbase - nobody seems to be seen as a competitor threat - but a likely partner. The exchange also buddied-up with Circle for the USDC stablecoin. Strategically, the more the onramps into cryptocurrency, the more potential for the ecosystem to succeed.